The last eighteen months have been trying times for businesses in the UK and across the world. Staying in the black can be difficult at the best of times for small businesses but Covid brought a unique set of problems with it.
Enforced closures of businesses deemed non-essential meant that individuals were put out of work, and retail stores and other businesses lost revenue. It was feared that the last year could have seen more than half a million small business enterprises hit the wall. March 2020 saw 21,000 more firms collapse than the same period in the year before, and this was before the pandemic did its worst.
It is normal for a percentage of businesses to fail. Trends change, products go in and out of fashion, consumer tastes change, and the way people shop can affect some businesses.
Regardless of what industry a business is in, it must keep a regular amount of cash running through the company. Fortunately, some modern systems can help make this easier.
Why do some companies fail?
For a company to operate smoothly and properly, it will need a regular, healthy, flow of cash. Liquid assets, especially cash are essential for businesses to keep operating, and it is when this cash flow runs dry that a business can find itself in trouble.
For small businesses, this experience can be a sudden turn of events. Many companies run on very tight profit margins and rely on clients and customers paying invoices regularly and on time. All it takes in many instances is one major client, or two or three smaller ones, not paying outstanding invoices and a business could find itself in trouble.
If you are a business owner then no doubt you will spend time looking for ways to multiply your income, however, cash flow problems can often stem from non-payments rather than a lack of enterprise from you or another business owner.
Why don’t companies pay on time?
You need your customers to pay you on time so that you can in turn pay your suppliers and your other debts. When one business struggles to pay its invoices, that can lead to further problems down the chain. Especially, when it involves mostly small businesses.
The truth is that most customers do want to pay their debts. However, some business owners are persistent late payers and this may be because they want to keep the money in hand for as long as possible, or it may be because they have some financial problems of their own. It may also be because they simply forgot to pay.
When you extend a line of credit to your customers you will need to analyze the company’s finances that you are lending to. If you let a business have too much credit then they may struggle to pay for goods or services received.
There are many other reasons that invoices don’t get paid. If there is a dispute over an order then this needs to be resolved before you will receive payment. Documents that contain inaccurate information can hold up payment. Simply having the invoice due date wrong can mean late payments.
How can you speed up invoice payments?
Communication is one of the most productive ways to reduce the time it takes to get paid. Letters, emails, SMS, and phone calls, can all contribute to cash arriving in your bank faster. Late invoices need to be followed up with reminder letters as sometimes people genuinely do forget to pay on time.
The best form of communication when it comes to reminding a debtor of an upcoming payment is to combine an email with an SMS. Both of these forms of communication are instant and inexpensive. While you cannot prove 100% an email arrived, a text message has provable delivery. If someone receives a message on their phone they will almost always look at it straight away.
If you have a good personal and business relationship with your customer, you can also telephone to remind them of the upcoming or late payment. There is also software that can be used for this.
Automated and integrated systems for collecting payments
There is software available that can help with your cash flow and reduce the time spent chasing after outstanding debts. Many firms such as Payt develop software to help with debtor management and cash collection. A fully integrated system can help with the following areas:
- Invoicing and reminder letters
- Payment platform and processing
- Debtor management
- Credit checks
- Payment plans
- Invoice financing
Having this software integrate with your accounting and invoicing systems means that you can automate many of the processes involved with debtor management.
Invoicing and reminders
The software would send electronic invoices to the customer and follow this up with reminders as the date approaches. Late invoice letters will be sent out automatically if payment has not been received.
After receiving an invoice the client will have the option to pay then and there online. An integrated payment platform will offer a variety of ways to pay.
Perhaps the best way to manage debt is to ensure that it never grows out of hand in the first place. The collection software runs alongside other features including credit checks. Before extending any line of credit, you can assess your customer’s business through the software. This lets you weigh up how big a risk your client will be.
How can you use this software to increase your cash flow from bad payers?
While an automated system including collection software can help you to reduce the waiting time for invoices, there may still be one or two non-payers.
Debtor management and collection software may also include two other handy features; payment plans and invoice financing.
Payment plans can be set up through the software by you or the debtor and provide an easy to manage method of reducing debt. This is especially handy for clients who are very willing but unable to pay the amount outstanding in one go.
Another way to raise funds from late invoices is to borrow against them. Invoice financing can be done directly through these systems and allows a business to raise money from a specialist type of lender. Typically a borrower could expect around 80% of the accounts receivable from a lender. When the invoice is finally paid the borrower would repay the debt plus a fee or interest on the loan.
While this feature can be very handy in times of poor cash flow, it is a short-term method of raising funds, and if the debtor doesn’t pay the invoice, the lender still has to repay the loan.
Automated debtor management and collection software can reduce the amount of time wasted on communicating with clients and chasing debts. Reminders are sent out automatically and regular communication helps to ‘nudge’ the debtor into paying on time.
Many people would love to know how to get rich with the help of modern technology, but in times such as now, perhaps just staying in the black is good enough. Proper debtor management is essential to cash flow and for making sure that payments are received in full, and automated software can help businesses achieve this.